For Milwaukee-area stocks, the darkest hour might be just before the dawn. The question is, how long will the dark hour last?

Local financial, retail and manufacturing stocks are downtrodden and could remain that way for another quarter or two. Investors seeking bargains might find them now, but they'll need to endure more suffering and uncertainty before a rebound, experts said.

"These stocks are going to struggle for a little while," said Todd Parrish, a stock researcher at Robert W. Baird & Co. Inc., Milwaukee. "Things are still deteriorating."

The deterioration of financial and retail stocks has received the most attention nationally, and Milwaukee has its share of those. The most-hammered stocks include MGIC Investment Corp., which was down 48.8 percent from the market peak in October 2007 through Jan. 29. Marshall & Ilsley Corp. is down 26.7 percent and Kohl's Corp. is down 27.8 percent.

Some of those had been riding high on the strong economy through mid-2007, but they've suffered as sales and earnings have begun to weaken and the overall economy is slowing.

The stock index that provides the best comparison to southeast Wisconsin stocks is the Standard & Poor's 500, which was down nearly 13 percent from its peak on Oct. 9, 2007, through Jan. 29. Of 38 Milwaukee-area stocks analyzed for this article, 31 declined during that period and 23 fell by larger percentages than the S&P.

Among the stocks that analysts and investors believe will bounce back -- possibly not until 2009 -- are Kohl's, Marshall & Ilsley and Manpower Inc., which is down 19.6 percent. Automotive suppliers including Modine, Johnson Controls Inc. and Strattec Security Corp. also will reverse their fortunes over the next several months, said Baird analyst David Leiker.

Uncertain times

Uncertainty remains about the prospects for mortgage insurer MGIC, which is in the middle of the subprime mortgage crisis. The stock is "really cheap," but the company needs to survive several challenges in the coming months before investors can be assured of a comeback, said Rick Lane, president of Broadview Advisors in Milwaukee.

Lane said the ultimate success of a turnaround at MGIC will be determined by employment rates nationwide and whether homeowners can avoid foreclosure.

"If people hold onto their homes, MGIC will be okay," Lane said.

An MGIC spokeswoman declined to comment.

A few area stocks not only outperformed the market, but also showed gains.

They were led by two mining equipment manufacturers that continue to benefit from the unquenched global demand for coal: Joy Global Inc., which was up 16.2 percent, and Bucyrus International Inc., up 12.8 percent.

The two manufacturers remain well-positioned to capitalize on the worldwide mining boom, Lane said.

Aside from the mining-related stocks, most southeast Wisconsin stocks perform poorly when the economy is heading downward, Parrish said. National economic trends overall have been negative since last fall and investors remain concerned about the squeeze on consumers.

"Consumer discretionary stocks are in what I call a nuclear winter right now," said Will Nasgovitz, a portfolio manager at the Heartland Funds in Milwaukee.

Nevertheless, analysts believe that Kohl's, the Menomonee Falls-based department store chain, is among the local stocks poised for a rebound.

"Kohl's has an opportunity to really grow their store base," Nasgovitz said.

On the other hand, consumer-products maker Harley faces issues related to the slowdown in American consumer spending and the aging of its customer base, analysts said.

Small-engine and lawnmower maker Briggs & Stratton Corp. is caught in the severe decline in housing starts. Its price is down 22 percent since October, to $19.52, and Baird analyst Craig Kennison recently reduced his target price to $20.

Another area stock tied to economic cycles -- Manpower -- has been hurt by its direct ties to the employment market. While temporary workers often are the first-fired during a slowdown, the company's overall trajectory under CEO Jeff Joerres is upbeat, Lane said.

"Joerres has done a great job vs. two huge European competitors," Lane said. "I'm looking to next year when things get better again."

Likewise, banks such as Marshall & Ilsley "got creamed" by the stock market, but their prices already account for investor concerns about financial stocks, Lane said. Bank financial performance "is going to get uglier" the next two to three quarters and then improve, he said.

M&I is a great business going through a difficult cycle, Lane said.

"You've got to look out a year-and-a-half," he said.

Nasgovitz is looking for opportunities in small small-cap stocks, which amount to 23 on the southeast Wisconsin list of 38 stocks. Those smaller stocks are down 20 percent as a group and already in a bear market, he said.

They tend to outperform the market in the first year after a bear market ends, he said.